President Obama's Fiscal Year 2016 Revenue Proposals: Proposals Relating to International Taxation

Sullivan & Cromwell LLP - February 17, 2015

On February 2, 2015, the Obama Administration (the “Administration”) released the General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals (commonly known as the “Green Book”).  Although the Green Book does not include proposed statutory language, the Green Book contains significant detail about the fiscal year 2016 revenue proposals.  Many of these proposals were made previously by the Administration but were not enacted into law. 

This memorandum discusses key aspects of the Green Book relating to international taxation. We will be distributing a separate memorandum addressing Green Book proposals relating to domestic business taxation. We previously distributed separate memoranda addressing Green Book proposals relating to:  (1) taxation of offshore profits of U.S. corporations (the “Offshore Profits Proposal Memorandum”), and (2) individual, estate and gift, and retirement plan taxation. All such memoranda may be obtained by following the instructions at the end of this memorandum.

The Green Book international proposals would make significant changes to the existing international taxation regime, and includes the following specific proposals:

  • taxing offshore profits of U.S. corporations:
  • imposing a 19% minimum tax on U.S. corporations’ future foreign profits, with generally an 85% credit for associated foreign taxes paid (for details, see the Offshore Profits Proposal Memorandum);
  • imposing a one-time, immediate 14% tax on U.S. corporations’ current accumulated overseas earnings, with generally a 40% credit for associated foreign taxes paid (for details, see the Offshore Profits Proposal Memorandum);
  • providing tax incentives for locating jobs and business activity in the United States and removing tax deductions for outsourcing jobs overseas;
    limiting the ability of domestic entities to expatriate;
  • restricting the use of hybrid arrangements that create stateless income;
  • closing so-called “loopholes” under Subpart F;
  • restricting deductions for excessive interest of members of financial reporting groups;
  • repealing the delay in the implementation of worldwide interest allocation;
  • extending the exception under Subpart F for active financing income;
  • extending the look-through treatment of payments between related controlled foreign corporations (“CFCs”);
  • taxing gain from the sale of a partnership interest on a look-through basis; and
  • expanding the IRS’ authority to reallocate income in the case of related-party intangible property transfers.